Credit card rewards offers have vastly improved since the doldrums of the credit crisis and major credit card companies are literally forking over money to attract new customers. While some may see this as an opportunity to jump at a short term reward, the smart way of viewing the current crop of rewards incentives is as compensation for the hassle of switching from your current card to a new card. Consequently, the wise way to approach the credit card rewards market today is to seek a balance between upfront perks and long term value.
Here, credit card rewards offers have been split into two categories: no annual fee cards and cards with annual fees. While instinct may lead one to opt with a no annual fee card, many of the best rewards cards currently charge annual fees. In many instances, consumers who spend $10,000 or more per year or travel frequently can earn more with a rewards card that offers better rewards, but charges an annual fee.
The Best Rewards Credit Cards with No Annual Fees
Chase currently dominates the rewards market, both in terms of upfront incentives and long term value. Perhaps their best known offer is Chase Freedom, a cash back credit card that offers consumers 1% cash back on all purchases and 5% cash back on up to $1,500 of spending in categories like gas, groceries and travel that rotate every three months. At present, they have two offers that provide the same long term rewards, but vary in terms of sign-up bonuses and interest rates. You can compare these offers below.
Citibank, via its Dividend Card, offers a similarly structured cash back program – 1% cash back and 5% in categories that rotate every three months. One of the key differences between these cards is that there is a $300 cap on cash back rewards per year – Chase Freedom has no limit. The other difference is in the introductory rate department, with the Dividend card offering significantly longer 0% intro rates on purchases and balance transfers. This makes this card a better fit for consumers who think they’ll need a rate cushion during the near future.
The Chase Sapphire Card is also worth noting. It offers a 25,000 point sign-up bonus – a $250 value – making this the largest sign-up bonus among current no annual fee cards. Sapphire lets consumers earn one point per dollar – and two points per dollar spent on dining – and these points are easy transferable into cash back rewards at a rate of one cent per point.
Lastly, the American Express Blue Cash Everyday card is another noteworthy offer. It offers a significant 3% cash back on groceries year round, 2% cash back on gas and at department stores and 1% cash back on everything else. The Blue Cash card does come with an above average interest rate, so this card is best left to consumers who pay their balances in full every month.
The Best Rewards Cards with Annual Fees
For the most part, credit cards with annual fees are best left to consumers who spend heavily on their cards and pay balances in full every month. However, recent changes to travel and airline credit cards have made some of these offers worth a closer look.
Once again, Chase is a leader in this rewards sub-category. Their Sapphire Preferred Card offers a substantial $500 sign up bonus to new customers, one of the largest incentives ever available. However, a large bonus would be meaningless if the card did not offer long term value. It does.
A key feature international travelers will benefit from is the lack of a foreign transaction fee. This feature can save consumers up to 3% on every dollar spent outside the U.S. compared to average cards. A second travel perk is the opportunity to earn double points on all travel and dining purchases. Most importantly, however, the Sapphire Preferred card is one of the few points based rewards offers where points can be redeemed for cash at a value of one cent per point. Even American Express rewards are only worth 1/2 cent per point when redeemed for cash.
The Continental OnePass Plus card and United MileagePlus Explorer card offer free checked bags to cardholders, a savings of $50 per round trip. A person who flies on the newly merged airline twice a year more than earns back the $95 annual fee charged after the first year. Add in the 25,000 to 40,000 miles that can be earned at sign-up, and a person who flies United/Continental once a year essentially pays nothing to be a cardmember for over three years.
Another airline card of note is the Gold Delta SkyMiles card from American Express. Like the Continental and United cards, this offer provides a bounty of free miles to new applicants and waives check bagged fees for not only card-members, but also for up to 8 others travelling with them. There is a $95 annual fee after the first year, but a couple that flies once a year on Delta saves more by flying with checked bags just once a year.
The heavily advertised Capital One Venture Card is yet another airline rewards card worth consideration. It charges a $59 annual fee after the first year, but offers up 25,000 miles worth $250 to new applicants who meet spending requirements. The key benefit to this card is that every purchases earns 2 miles all year round. And, since miles can be redeemed at one cent apiece, this card is ultimately like a cash back credit card that pays out 2%.
Choosing the Right Rewards Credit Card
Given the wide range of available options, a few key things should be kept in mind when comparing rewards cards. First, one should consider whether or not they spend enough to justify an annual fee. Casual credit card users who spend less than $10,000 a year are likely best off opting for a no annual fee card, while those who spend heavily – or fly the same airline once or twice a year – will likely reap more rewards profit with a card that does carry a fee.
Another thing to consider that is of the utmost importance are interest rates – both long term and short term. Consumers who carry balances from month to month should look for a card that offers a mix of rewards and a lower interest rate, while those who always pay in full every month ultimately can ignore the interest rate component.
Lastly, with so many headline grabbing bonuses available, it is important not to choose a card just for the short-term reward. Consider the long term benefits and if you can benefit more in the long term from a card that doesn’t offer a huge sign-up bonus, don’t get short-term greedy and instead think about how you will benefit over the course of two or three years.
